2016 (6) TMI 1328 - AT - Income Tax

Addition in respect of rented property - ALV determination - Assessee has let out these properties to one of the company where assessee has made some investment - Held that - As perused the order of the Hon ble Delhi high court full bench 2011 (3) TMI 497 - DELHI HIGH COURT dealing with the identical issue with respect to the same properties where issues have been decided by the Hon ble high court in favour of the assessee. Therefore respectfully following the decision of the Hon ble high court we decide ground No. 1 in favour of the assessee reversing the order of the lower authorities deleting addition made in respect of rented properties Deemed dividend addition u/s 2(22)(e) - companies controlled by the assessee through the shareholding of his minor son - advance rent received - Held that - Merely because the shares are held by the minor son of the assessee and the loan is received by the assessee it cannot be established that assessee is the beneficial shareholder of 10% or more and therefore such loan amount is not chargeable to tax in the hands of the assessee. Furthermore the submission of the assessee before the lower authorities that it is in the nature of advance rent as whenever the rent is payable by the company to the assessee same is deductible from this amount therefore it partakes the character of advance rent. AO has not categorically stated that this amount is not advance rent and not adjusted subsequently against the rent payable by the company to the assessee. According to us if it is an advance rent then it becomes a business transaction and the provisions of deemed dividend cannot apply to such transactions. In view of this we reverse the finding of lower authorities in confirming an addition on account of advance rent received by the assessee from the Suba Microsystems private limited. - Decided in favour of assessee.

Summary

Issues:
1. Addition of rental income from properties
2. Addition of deemed dividend under section 2(22)(e) of the Income Tax Act

Analysis:

Issue 1: Addition of rental income from properties
The appellant challenged the addition of rental income from two properties, claiming that the Hon'ble Delhi High Court had ruled in favor of the assessee in a similar case. The assessing officer made additions to the rental income based on the annual let out value of the properties. The appellant argued that the addition was not proper as it was based on notional interest on security deposits. The departmental representative supported the lower authorities' orders. The Tribunal reviewed the High Court's decision on identical issues and ruled in favor of the assessee, citing that fair rent must be determined. Consequently, the Tribunal allowed the appeal, reversing the addition of rental income from the properties.

Issue 2: Addition of deemed dividend under section 2(22)(e)
The second ground of appeal was against the addition of deemed dividend received by the assessee from a company controlled by his minor son. The assessing officer added the amount as deemed dividend under section 2(22)(e) of the Income Tax Act. The appellant argued that he held less than 10% shares in the company and that the amount received was part of a current account maintained for business transactions. The departmental representative contended that the assessee controlled the company through his minor son's shareholding. The Tribunal noted that the assessing officer did not establish the assessee's beneficial ownership of shares as required by the law. Additionally, the Tribunal found that the amount received was akin to advance rent, a business transaction, and not subject to deemed dividend taxation. As a result, the Tribunal allowed the appeal, overturning the addition of deemed dividend.

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside both additions made by the assessing officer.